FRS 102 amendments

The FRC has issued amendments to FRS 102

As previously highlighted, when issuing FRED 67 the Financial Reporting Council (FRC) allowed for certain pre-publication amendments to FRS 102 to be applied early ahead of the issuing of the final amendment publications. It has now issued Amendments to FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland; Triennial review 2017; Incremental improvements and clarifications.

As a reminder, the FRC allowed changes in areas that caused businesses and their advisers problems, including measuring directors’ loans at present value, to be adopted early. At the time of issue of FRED 67 the FRC said that it recognised that the revised treatment of directors’ loans in FRED 67 should be able to be applied now and that by allowing early adoption before the consultation on FRED 67 and finalisation of the changes it will save many businesses the problems of applying the present value rule for one year and reversing it in the next year.

The FRC also stated that businesses with periods beginning on or after 1 January 2016 (so 31 December 2016 year ends) could adopt the treatment as set out in FRED 67, and it allowed small entities to be exempted from paragraph 11.13, which contained the present value treatment.

The directors' loans change and also the Gift Aid tax effect changes in FRED 68 (see Accounting and Business, November/December 2017) can be applied early. The other amendments apply for accounting periods beginning on or after 1 January 2019, with early application permitted provided all amendments are applied at the same time.

The other principal amendments to FRS 102 are that it:

  • requires fewer intangible assets to be separated from goodwill in a business combination
  • permits investment property rented to another group entity to be measured by reference to cost, rather than fair value
  • expands the circumstances in which a financial instrument may be measured at amortised cost, rather than fair value
  • simplifies the definition of a financial institution.

The intangible assets paragraphs have changed from the original FRED 67. For example, paragraph 18.8, regarding the recognition of intangible assets, states:

'Intangible assets acquired in a business combination shall be recognised separately from goodwill when all the following three conditions are satisfied:

(a)  the recognition criteria set out in paragraph 18.4 [the entity shall recognise an intangible asset as an asset if, and only if: (a) it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and (b) the cost or value of the asset can be measured reliably] are met;

(b)  the intangible asset arises from contractual or other legal rights; and

(c)  the intangible asset is separable (ie capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged either individually or together with a related contract, asset or liability).'

This opening part of the paragraph is unchanged from FRED 67 however the next part of Paragraph 18 in  FRED 67 stated

'An entity may additionally choose to recognise any or all intangible assets separately from goodwill for which only condition (a) above is met. When an entity chooses to recognise such intangible assets separately from goodwill it shall apply that policy consistently to the relevant class of intangible assets.'

This has been amended and now states

'An entity may additionally choose to recognise intangible assets separately from goodwill for which condition (a) and only one of (b) or (c) above is met. When an entity chooses to recognise such additional intangible assets, this policy shall be applied to all intangible assets in the same class (ie having a similar nature, function or use in the business), and must be applied consistently to all business combinations. Licences are an example of a category of intangible asset that may be treated as a separate class, however, further subdivision may be appropriate, for example, where different types of licences have different functions within the business.'

If you have considered adopting changes early relying on FRED 67 you will need to consider the final changes as highlighted above as there are differences that may alter your reporting treatment.